The Evolution of Corporate Governance by Bob Tricker and published in 2020.

Back in the early 2000s, I wrote a school paper on corporate directorships where I wanted to ascertain how people became directors. Since Marquis had put their Who's Who online, one quick perl script and a weekend later I had the entire database.¹

The most common path to directorship is to be a CEO and have gone to a public university. From a base rate perspective, I expected the latter as the state schools graduate far more students than the Ivies. However, I expected more C*Os, since there should be more C*Os than CEOs.²

The problem with this farm system of directors is that it does not produce enough independence of opinion. This book itself recounts the number of large directorship failures that have occurred in the intervening years: Enron/Arthur Andersen, Fannie Mae, Marconi, Parmalat, Vodafone Mannesmann, Wirecard AG, etc.

How can we generate more independent directors? Were this the 1700s, an independent board would have clergy, nobility, and military; they would all have their own independent sources of wealth and respectability which would (a) allow them to by less influenced by directors' fees, and (b) provide each with different notions of honor to uphold.

Part of the ESG movement has been to try to increase board diversity and independence. And while there are many former military on corporate boards, it is rare to find nobility or someone from the clergy. The push seems largely to have targeted other minorities.

Unfortunately, there have been no attempts to assure independence of income, eg. require independent directors to be accredited investors. While this lowers the bar and allows more potential candidates,³ it allows a form of insider trading where the CEOs know more about the candidates than the shareholders and can choose those who only look independent.

By restricting the pool of candidates to the financially independent and interested in directorship, boards only end up with people who are "business-minded". While this prima-facie appears a valid criticism, who other than people who understand business would have caught the large scandals listed above?

Friedman, Milton (1970), The social responsibility of business is to increase its profits.

Association of Corporate Directors (NACD) did produce a report on director professionalism. The Commissions recommendations suggested that key board committees should be composed entirely of independent directors, have a written charter describing their duties and should be able to appoint independ-ent advisors. If the board chairman was not an independent director, the board should appoint an independent director to lead the outside directors, who should hold periodic sessions without the executive directors being present. Audit committees should meet independently with both the internal and independent auditors. Boards should provide new directors with an orientation programme to familiarise them with their companys business, industry trends and governance practices. The American Law Institute published a set of general principles on corporate governance, which generated a debate on the regulation of boards and directors by the courts. Then in 2003, the SEC approved new listing requirements ref l ecting many of the NACD recommendations.

This situation highlights the ignorance of independence paradox: the more independent directors know about a companys business, organisation, strat-egies, markets, competitors and technologies, the less independent they become; while the greater the ignorance of outside directors about the business, the greater their independence! Yet it is the outside director who really knows the business who can contribute most to strategy formulation, policy making, risk assessment, management succession planning, executive supervision and handling crisis situations.

The study of corporate governance lacks a unifying paradigm.